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Food prices have hit their lowest in nearly seven years despite a slight deterioration in ideas for current grain supplies, and a “mixed” outlook for 2016 harvests, the United Nations said.

Food prices last month dropped by 1.9%, extending to 37% their decline from a high reached in 2011, the UN food agency, the Food and Agriculture Organization, said.

The decline was led by a 4.1% drop in sugar prices, fuelled by “better-than-expected crop conditions in Brazil, the worldґs leading sugar producer and exporter”, where mills are operating an extended cane crushing season.

The fall was also fuelled by a retreat in cereals prices to within an ace of a nine-year low, despite some erosion in expectations for grain supplies.

‘Ample global supplies’

The agency highlighted that global stocks remain comfortable, so limiting the need for buyers to pay up.

“Ample global supplies, increased competition for export markets and a strong dollar continued to weigh on international wheat and maize prices, with the US maize quotations falling to multi-year lows,” the FAO said.

The agency lifted by 3.8m tonnes to 210.7m tonnes its estimate for wheat stocks at the close of 2015-16 citing “upward adjustments to earlier forecasts in Argentina, China, Russian Federation and Ukraine”.

Key ratio

However, the FAO also flagged a reduced estimate for coarse grain inventories, cut by 5.7m tonnes to 642.4m tonnes for the close of 2015-16, reflecting downgrades to figures for Brazil and the European Union.

The estimate for overall grain stocks, including rice, at 642.4m tonnes, was downgraded by 1.0m tonnes to 642.4m tonnes, trimmed to 24.9% the estimate for the stocks-to-use ratio which, in showing the availability of a commodity, is seen as a key price indicator.

The ratio, while 0.4 points down year on year, remains comfortable by historical standards.

However, the stocks-to-use figure for exporting countries, a metric watched particularly by investors, was pegged at 15.7%, a drop of 1.8 points year on year and the lowest in at least five years.

‘Mixed’outlook

The agency, in its first forecasts for 2016 harvest prospects, said that “early prospects for cereal crops are mixed”.

Conditions for winter grains were “generally favourable” in Russia, while the European Union, the world’s top wheat producer, appears set for a “third successive large output this year”.

However, “dry weather forced Ukraine to sharply cut the area under wheat”, the agency said, flagging the drop in US sowings of winter wheat, and expectations of a fall in plantings in India “following a poor 2015 monsoon and below-average rains since October”.

In southern Africa, “conditions are mostly unfavourable”, the FAO said, adding that “El Niсo-associated dry and hot weather has severely weakened crop prospects, especially in South Africa where preliminary indications point to a 25% likely cut in production”.